Extant Realty

Is It Time to Pull Out of the Stock Market?

In late August of this year (2015) I had a conversation with an investor who is very close to me. I simply said, “You know the stock market is at record highs right?” He said, “Yeah my stock portfolio is doing pretty well!” After congratulating him on his returns I said, “You know what happens after a market peaks right?” sarcastically, because of course he does.

Recently, we had some corrections, or dips in the market and as a result increased volatility, which of course only makes money for the stock brokers moving your money in and out. I am far from a stock expert, but anyone with a basic financial and economic understanding can look at the data from the last 100+ years and see that after stock markets peak they correct, and typically over-correct, drastically dropping stock values.

“In the past, when small stocks significantly lagged large-caps, there’s been a broad selloff—with typical losses of 12% for the S&P 500. Plus, a pullback is overdue. A stock market correction—defined as a loss of 10% to 20%—occurs on average every 26 months, according to InvesTech Research. We’re now at month 32 and counting. Markets like this can be tricky because it’s difficult to tell how much defense to play.”

– Craig Johnson, Piper Jaffray Managing Director, Money Magazine online

So if the stock market is the hill you live and die on, then something like a Vanguard index fund would be the hang-in-there-for-long-term-growth path. The index fund actually has fundamental investing to it and will outperform 96% of mutual fund managers over a sustained period of time. (-Tony Robbins, Master the Money Game).

You may have heard this before, but Warren Buffet has never sold a stock! Instead he invests because of the fundamentals of the investment! One of those top fundamentals is, “Does it Cash Flow” and another is, “Is there opportunity for revenue growth.” These fundamentals are why I love investment real estate. If you know your market intimately, you know all the key fundamentals and whether the investment is a winner or a loser. If you buy a cash flow asset that can pay you a cash return and at the same time consistently sustain or improve in value, you lower your risk. For example: for our acquisitions we know where we will purchase, what the rents are in the area, what the vacancies are in the area and what level of deferred maintenance the property has. When we find a property that meets this criteria it is just a matter of looking at the fundamentals of the deal. What is the income, the expenses, financial terms, additional costs of improved use? When we can meet our minimum financial fundamental requirements and the asset has the ability to increase revenue and/or value, we acquire the predictable cash flow asset.